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Should insurance cost $500 or less?
A consumer advocacy group says the cost of car insurance represents an “extraordinary burden” on low-income families.
A good driver in a third of low- and middle-income ZIP codes in the nation's 50 largest cities must pay more than $500 a year for basic coverage, according to a new report from the Consumer Federation of America (CFA). In 9 percent of those ZIP codes, where household incomes fall below $41,500, the average premium quoted for state-minimum liability insurance was more than $3,000.
“Our research raises important questions as to whether state-mandated auto insurance is priced fairly and is affordable for many lower-income Americans,” says Tom Feltner, principal author of the report.
A separate CFA survey of 1,000 consumers found that 76 percent believed a “fair and reasonable” annual rate to insure an experienced driver with a clean record at state-minimum levels would be $500 or less.
The price of identical coverage can vary wildly from insurer to insurer, but no premium less than $500 a year for mandatory coverage was available from the five major carriers surveyed by CFA in any low-income ZIP code in nine large metro areas (Miami, Detroit, Minneapolis, Tampa, Baltimore, Orlando, New Orleans, Jacksonville, Fla., and Hartford, Conn.).
Basic liability coverage is a requirement for operating a car legally in every state except New Hampshire - and even there, drivers must prove financial responsibility once a wreck has occurred. Non-driving factors such as ZIP code, credit score and occupation can greatly affect the cost of coverage even for the safest drivers.
Yet state minimum requirements often are not high enough to cover all the costs of a major accident. California, for example, requires as little as $15,000 per person for bodily injury liability and just $5,000 for property damage liability. Anyone with substantial income or a home almost certainly needs to buy more than the state minimums. (See “ .”)
Industry group Property Casualty Insurers Association of America (PCI), in response, says the rates insurers offer are the result of real-world conditions and costs.
“Auto insurance costs reflect the actual, comparative costs of providing the coverage, such as driver usage and history, roadway congestion and the number of accidents and related lawsuit, health care and auto repair expenses in the area where the car is garaged,” says personal lines director Robert Passmore.
Passmore says consumers would be more effectively served by fighting fraud, improving highway safety and reforming the legal system. And by shopping around.
"Turning on the TV or radio or visiting the Internet will clearly demonstrate how very competitive auto insurance is, and that competition helps hold rates down to their lowest responsible level," Passmore says.
For its part, CFA suggests that state regulators and the insurance industry develop a standard for measuring affordability, that insurers offer drivers with clean records the lowest price available from any of their underwriting affiliates, and that states establish low-cost plans for good low-income drivers, as California has done.
Nationwide, the average expenditure on insurance per vehicle for all households was $797 a year, according to the most recent data from the Insurance Information Institute. That figure includes mandatory liability but also the cost of collision and comprehensive coverage in many cases.
The original article can be found at Insurance.com:
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